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AmEx Gift Checks

Almost a year ago, I received a $25 American Express Gift Check (which they stubbornly spell with the British/Canadian/Australian “cheque” despite being named American Express… but I digress.). A few of these were given out to employees on our team as recognition for good work. (In fact, it was really recognition for completing a high-profile project, which had much more to do with the assignment of tasks than with their execution… but again, I digress. [sorry]) From the web site, I gleaned that these checks were meant to be gift certificates that can be used anywhere. Safer than cash, but less likely to be deposited than a straight check (or even a cheque).

These gift checks are strange and inconvenient. I figured the company must think that the attractive gold envelope makes the gift seem more special, which is why they would pay the $2.50 fee to give me $25. Or perhaps it’s the idea that it’s a generic gift certificate; some people would rather be given a gift certificate that they have to spend than a check they feel they should deposit.

However, I later learned that when they want to give more than $25, the company gives multiple $25 gift checks. Hmm. That got me thinking. After a bit of investigation, I think I understand why they give out these gift checks:

First, companies cannot give gifts to their employees. Not in the IRS sense of the word “gift”. Companies give wages to their employees. When your company gives you something extra, it’s a bonus, not a gift, and the IRS wants their share. Now, the IRS (wisely) does not rely on you to report these “gifts” as income (although you are required to do so). The employer is also responsible for reporting the income on your W-2. Even if it’s not cash (say, a gold watch or a car [ha!]), the employer must report this as part of your income.

Now, there are some exceptions. One of the exceptions is called the “de minimis” rule. “De minimis” is Latin for “you’ve got to be kidding.” If your employer gives you a 20-year service award plaque valued at 35 cents, nobody has to account for it. Company picnics, gift baskets, and t-shirts with that spiffy company logo all tend to fall under this rule.

But what about gift certificates? The IRS attempted to nip this in the bud by saying:

if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved

Hmm. I don’t remember seeing that $25 gift check included on my W-2. What’s going on here? Well, I found a page for HR professionals that clarifies:

a federal district court has held that $15 or $25 “Holiday Gift Certificates,” which were redeemable in merchandise at stores selling the employer’s products, were not wages

Now, wait a minute. The IRS says they’re taxable. That’s final, right? When I’ve got a question about whether something is taxable, I look up the appropriate IRS publication and follow what it says, don’t you?

Next time you peruse IRS publication 17 (you have read it, haven’t you?), take a look at the text at the bottom of the second page:

This publication covers some subjects on which a court may have made a decision more favorable to taxpayers than the interpretation by the IRS. Until these differing interpretations are resolved by higher court decisions or in some other way, this publication will continue to present the interpretations by the IRS.

Did you get that? IRS publications are not law. Read that last sentence again; I’ll wait. The IRS publications are their interpretation of the law. That’s scary. A federal court decided that the IRS was wrong to claim that all gift certificates should be treated as wages. The IRS doesn’t seem to have jumped to update their publication. But companies who hire HR consultants with smart lawyers know about these types of rulings.

This may be a bit of stretch, but I’m guessing that companies are relying on that federal court ruling to allow them to give $25 gift certificates to employees without reporting it as wages. But what type of gift certificate would please everyone? American Express jumps in with their gift checks that are “good virtually anywhere.” I’d be willing to bet a $25 American Express gift check that their most popular denomination is $25 and their biggest market is companies looking to give out employee gifts.

I presume that HR has blessed these AmEx gift checks and supervisors throughout the company have a supply to give out. Sometimes they give out more than one at a time to create a larger gift. HR probably doesn’t know that (or doesn’t want to know). But when it happens to me, do I have to report it as income? Does anyone have the phone number for that federal court judge? I have a question for him.

September 13, 2004 2 Comments.


  1. Mark A. Hershberger replied:

    “Gift” Credit cards are also available. I got one of these a few
    years ago just before I quit a job. When I tried to use it (after I
    quit, natch), it had been caceled.

    The interesting thing was that the credit cards can be limited. The
    one I recieved was for food establishments only.

    But, I think it was $50, not $25.

    September 13th, 2004 at 2:16 pm. Permalink.

  2. Bob Aman replied:

    Personally, I like my company’s reward method of giving everyone a fully-paid half-day and handing them all movie tickets.

    September 14th, 2004 at 11:45 am. Permalink.

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